Too much austerity: the public sector begins hiring again after "over-firing"

The loss of 370,000 public sector jobs since 2010 has left some departments struggling to provide basic services.

The next time that you hear someone on the right claim that there has been "no austerity" since George Osborne became Chancellor, point them to the figures for public sector employment. They show that 370,000 jobs have been cut since the second quarter of 2010, with the public sector now at its smallest size since 2003. By 2018, according to the Office for Budget Responsibility, 1.1m will have gone. In the words of the usually restrained Chartered Institute of Personnel and Development, we are witnessing "a tectonic shift in the underlying structure of the labour market".

So great have the cuts been that Whitehall is now recruiting again, with public sector job creation expected to outpace that in the private sector in the next three months. The recruitment firm Manpower reports: 

We've seen the number of people leaving public sector employment slow as they reach the minimum they need to provide services, while some have gone too far and seen they need to begin re-hiring.

For the Tories, cutting public sector jobs is a matter of politics as well as deficit reduction. While in opposition, the party frequently complained that Labour's "client state" made the election of a Conservative government impossible, so, in office, they have reduced it.  As one senior Tory told the Spectator’s James Forsyth, "You create a bigger private sector, you create more Tories."

The polls certainly suggest as much. Polling by Ipsos MORI shows that while Labour has a 21-point lead among public sector workers (49-28), it leads by just four among their private sector counterparts (38-34). Logic says that if you reduce the former group and expand the latter (the OBR forecasts an extra 2.4 million private sector workers by 2018), the Tories will benefit. A smaller public sector means fewer people with a vested interest in high levels of spending. But as the Tories have found, there are limits to how far the state can be rolled back. 

Chancellor of the Exchequer George Osborne leaves 11 Downing Street in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Brexit has forced the Tories to retreat from austerity

George Osborne's decision to abandon his budget surplus rule is an acknowledgment of economic reality.

Before Brexit, it was intensified austerity that was threatened by George Osborne. But after the event, the Chancellor has taken the reverse course. In his speech to the Manchester Chamber of Commerce, Osborne abandoned the ambition that has defined his Treasury tenure: a budget surplus.

He said: "The referendum is expected to produce a significant negative economic shock to our economy. How we respond will determine the impact on jobs and growth.

"We must provide fiscal credibility, continuing to be tough on the deficit while being realistic about achieving a surplus by the end of the decade. That's exactly what our fiscal rules are designed for."

Rather than a dramatic reversal, Osborne's decision is now merely an acknowledgment of economic reality. The rule is automatically suspended when growth falls below 1 per cent (as it almost certainy will) in order to avoid further depressing output. But even before Brexit, Osborne was regarded by the IFS as having only a 50 per cent chance of achieving his target.

Labour is highlighting its consistent opposition to the rule, which it again called for the abandonment of after Brexit. A senior source hailed a "huge victory" for the "centrepiece of our economic criticism of the government over the last nine months since Jeremy [Corbyn] took over the leadership." I'm told that Labour will not abandon its Fiscal Credibility Rule as it is "more robust and flexible". Unlike the government's surplus target, it allows borrowing for investment, mandating only that day-to-day spending be balanced (a condition suspended if the Bank of England believes monetary stimulus has become ineffective).

As well as reflecting the new economic reality, Osborne's announcement was also an acknowledgment of the new political one. It will most likely be a future Chancellor who determines the path of fiscal policy (starting with this year's Autumn Statement). At her leadership launch yesterday, Theresa May pre-empted Osborne by declaring that "we should no longer seek to reach a budget surplus by the end of the parliament". Among the Home Secretary's notable supporters is Cabinet Office minister and arch-Osborneite Matt Hancock. The Chancellor's decision to echo May's stance is being seen by some as the prelude to an endorsement. But Michael Gove, who reportedly wants Osborne to remain in post, also acknowledged the new fiscal reality at his launch this morning.

Far from more austerity, it is already clear that Brexit will mean considerably less. As Osborne knows, there is no alternative.

George Eaton is political editor of the New Statesman.